Margins matter. The more Compagnie Générale de Géophysique-Veritas (NYSE: CGV) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. That's why I check on my holdings' margins at least once a quarter. I'm looking for the absolute numbers, comparisons to sector peers and competitors, and any trend that may tell me how strong Compagnie Générale de Géophysique-Veritas's competitive position could be.

Here's the current margin snapshot for Compagnie Générale de Géophysique-Veritas and some of its sector and industry peers, and direct competitors.

Company

TTM Gross Margin

TTM Operating Margin

TTM Net Margin

 Compagnie Générale de Géophysique-Veritas

20.6%

7.4%

(14.4%)

 Bolt Technology (Nasdaq: BOLT)

23.2%

23.2%

15.7%

 OYO Geospace (Nasdaq: OYOG)

31.9%

10.4%

6.2%

 Mitcham Industries (Nasdaq: MIND)

34.9%

5.5%

4.9%

 OMNI Energy Services (Nasdaq: OMNI)

30.4%

0.7%

(4.1%)

Source: Capital IQ, a division of Standard & Poor's.

Unfortunately, that chart doesn't tell us much about where Compagnie Générale de Géophysique-Veritas has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months (TTM), the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for Compagnie Générale de Géophysique-Veritas over the past few years.


(Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them.)

Here's how the stats break down:

  • Over the past five years, gross margin peaked at 33.8% and averaged 29%. Operating margin peaked at 22.4% and averaged 16.4%. Net margin peaked at 12.8% and averaged 4.4%.
  • Fiscal year 2009 gross margin was 23.4%, 560 basis points worse than the five-year average. Fiscal year 2009 operating margin was 10.1%, 630 basis points worse than the five-year average. Fiscal year 2009 net margin was -11.8%, 1,620 basis points worse than the five-year average.
  • TTM gross margin is 20.6%, 840 basis points worse than the five-year average. TTM operating margin is 7.4%, 900 basis points worse than the five-year average. TTM net margin is -14.4%, 1,880 basis points worse than the five-year average.
  • LFQ gross margin is 19.9%, 80 basis points worse than the prior year quarter. LFQ operating margin is 4.8%, 300 basis points worse than the prior year quarter. LFQ net margin is 0.4%, 530 basis points better than the prior year quarter.

With recent 12-month-period operating margins below historical averages, Compagnie Générale de Géophysique-Veritas has some work to do.

If you take the time to read past the headlines and crack a filing now and then, you're probably ahead of 95% of the market's individual investors. To stay ahead, learn more about how I use analysis like this to help me uncover the home run stock you're too afraid to buy.

Seth Jayson owned shares of the following at the time of publication: OYO Geospace. You can view his stock holdings here. He is co-advisor of Motley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio. Compagnie Générale de Géophysique-Veritas is a Motley Fool Global Gains pick. OYO Geospace is a Motley Fool Hidden Gems selection. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.